How do I move an unapplied (over) payment in QBO to the outstanding balance of a later invoice and also show the credit paid against the later bill?

Hello, mark. I've got the steps to handle overpayments.

In QuickBooks Online (QBO), there is a way to use customer credit as payment for vendor bills. We can set up a clearing account to move the balances accurately, which we will use for the Journal entry. To proceed, I highly suggest seeking an accountant to further assist you with completing this process. 

To set up this account, we can: 

1. Go to Settings ⚙ then select Chart of accounts.
2. Choose New to create a new account.
3. Under the Account Type dropdown menu, select Bank or Equity.
4. Under the Detail Type dropdown menu, click Cash on hand.
5. Enter the account name. (ex. Barter Bank Account)
6. Hit Save

Afterward, we can create a Journal entry to offset the customer credit and vendor bill. Let me show you how: 

1. Debit the Account Receivable (A/R) and choose the specific customer. 
2. Debit the Account Payables (A/P) and select the vendor. 
3. Credit the clearing account and enter the total amount for the A/P and A/R. 
4. Then, click Save and close from the dropdown menu. 
   
    

   

Once done, we can link the Journal entries to the customer credit through Receive payment and the vendor bill via Pay bills. 

I have included helpful resources on recording deposits and how you can refund your customer in QBO: 

• Record and make bank deposits in QuickBooks Online
• Record a customer refund in QuickBooks Online

I'm still ready to assist if you have further concerns with managing overpayments and credits in QBO. Keep safe!